Professional Documents
Culture Documents
By the Erasmus Students from Turin, Italy: Sara Zerbinati, Giorgio Guarnieri
EXECUTIVE SUMMARY
Fiat is one the most important Italian industries. It has been founded in 1899 in a northern Italian city, Turin, where it is still based in. Its core business has always been the automotive sector. It is now a group that includes: Fiat S.p.A, Ferrari, Maserati, Lancia, Alfa Romeo, Iveco, CHN. It has got plants all over the world and employs 173,695 people. Instead, just Fiat employs 46,099 people around the world. Fiat is a company that contributed to the Italian economic boom of the post Second World War, and it has still got a strong impact on the national economy. Before the liberalization of the markets Fiat had almost a monopoly, controlling more than the 60% of the Italian car market. Then its leadership was restricted to the low market segment, suffering the competition of the German car makers in the middle-high segments. Until 2000 the business seemed to be stable and with positive outlook, but a huge crisis affected the Group. Fiat did not adapted itself to the time, keeping an old-style structure while the environment required radical changes in order to compete with rivals all over the world. The situation was critical: Fiat was one step far to the crash. Then something has happened: the Group has been re-designed, with new president, new CEO and new top management to save Fiat. And they succeed. In our work we analyze how it has been possible: which is the strategy today and what is the car that symbolizes Fiats rebirth, the Fiat Grande Punto. It represents a turnaround respect the past, in terms of strategy, product, design, quality, services and prices. Fiat today presents a positive outlook, while other historical rivals suffer now from deep crises (e.g. General Motors and Ford).
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INDEX
1. INTRODUCTION.4 1.1 The group5 1.2 The company.7 1.3 Automobile market segmentation..9 2. STRATEGIC ANALYSIS 2.1 Vision and Mission.11 2.2 Macro Analysis 2.2.1 Economic context.12 2.2.2 Social-cultural context.16 2.2.3 Political-legal context16 2.2.4 Technological context.19 2.2.5 Ecological context21 2.3 Market analysis23 2.3.1 Sector analysis by Porters five factors..28 2.3.1.1 Suppliers bargaining power.28 2.3.1.2 Buyers power30 2.3.1.3 Alternative goods.31 2.3.1.4 Potential new competitors....32 2.3.1.5 Competition among existing firms32 2.3.2 Customers analysis, buying behaviour..34 2.3.2.1 Fiat purchase behaviour..37 2.3.3 Competitors analysis..38 2.3.3.1 Ford & Ford Fiesta39 2.3.3.2 Toyota & Toyota Yaris.40 2.3.3.3 Renault & Renault Clio.43 2.3.4 Competitors financial analysis45 2.4 Internal analysis.47 2.4.1 Financial assets.47 2.4.2 Value Chain49 2.4.2.1 Purchases and internal logistics49 2.4.2.2 Production.50 2.4.2.3 Distribution..52
Giorgio Guarnieri, Sara Zerbinati
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2.4.2.4 Marketing54 2.4.2.5 Services55 2.4.2.6 Infrastructure.55 2.4.2.7 Human Resources55 2.4.2.8 R&D56 2.5 Swot Analysis.57 2.6 Key Success Factors60 3. The strategic plan.61 4. Future marketing mix and segmentation.67 5. Conclusions
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Chart 1 Employee/unemployment rate.12 Chart 2 Tax of change.13 Chart 3 Trend of costs..13 Chart 4 Inflation breakdown by component14 Chart 5 10 years trend23 Chart 6 Car park breakdown24 Chart 7 Car park breakdown by feed. Chart 8 Market structure breakdown by feed. Chart 9 Market structure breakdown by cars body type Chart 10 Market structure breakdown by use. Chart 11 Market structure breakdown by geographical area.. Chart 12 Supply breakdown by product lines Chart 13 Brand loyalty breakdown by age Chart 14 Market structure breakdown by segment. Chart 15 B segment breakdown.. Chart 16 Reason for purchase.. Chart 17 B segment top 10 breakdown.. Chart 18 Costs breakdown Chart 19 Age breakdown Grande Punto vs. Punto buyers. Chart 20 Buyers age average.
Table 1 The macro economic context. Table 2 The political legal context.. Table 3 The technological context.. Table 4 The ecological context Table 5 Competitors financial analysis Table 6 Fiats financial assets.. Table 7 Fiat rating..
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1. INTRODUCTION
The goal of this work is to analyze the Strategic Marketing Plan projected and implemented by Fiat. In our analysis we will focus on one Fiat Autos company: Fiat. Another restriction will be made, analyzing a single product: the Fiat Grande Punto. These restriction are made in order to simplify the research on one hand, but on the other to pay attention to some details that would have been loss enlarging the work to a corporate strategy perspective. The company has been chosen for different reason: the main is that Fiat was born and it is still based in our city, Torino in Italy. It is one of the biggest Italian companies and one of the most important in the Italian economical scenery. But in 2001 it begun to struggle, going through a deep crisis that resulted into 17 consecutive quarters of net loss. Fiat was loosing the incredible amount of 3 million per day. A radical change in the company was then made: a new CEO, Sergio Marchionne, was appointed and the entire management restructured. The strategy was thus radically changed for finding a way to survive. In 2005 the crisis was finally overcome and the company is now constantly growing. One car, in our opinion, symbolize perfectly the rebirth of Fiat achieved through a deep strategy change: the Fiat Grande Punto. This explains why our research was made to understand that strategy.
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D.
Components and Production Systems Fiat Powertrain Technologies comprises the passenger vehicles engine and transmission activities over which Fiat regained control in May 2005 following termination of the Master Agreement with General Motors as well as the industrial powertrain activities that were included in the Iveco Sector until December 31, 2005. The Sector also includes powertrain research activities previously carried out by Centro Ricerche Fiat and Elasis. Magneti Marelli produces components for lighting systems, exhaust systems, suspensions and shock absorbers, engine control units, and electronic systems. Teksid supplies engine blocks, cylinder heads and other cast-iron components for engines; cast-iron components for transmissions, gearboxes and suspensions; and magnesium bodywork components. Comau produces industrial automation systems for the automotive industry in the areas of product and process engineering, logistics and management, manufacturing, installation, production start-up and maintenance.
85%
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The segmentation adopted in this work is the one usually used analyzing automotive market. This is segmented as follows: SEGMENT A: small cars SEGMENT B: economy cars SEGMENT C: medium cars SEGMENT D: up medium cars SEGMENT E: up market cars SEGMENT F: top exclusive cars The range of Fiat products includes these cars: SEGMENT A: 500, Panda SEGMENT B: Grande Punto SEGMENT C: Bravo, Stilo FAMILY VEICHLES-CROSSOVER (SW): Croma, Multipla, Sedici, Ulysse COMMERCIAL VEHICLES: Dobl, Palio, Ducato
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2. STRATEGIC ANALYSIS
2.1 VISION AND MISSION
It is not just the logo The vision of Fiat, today, is to develop a brand recognized by people not only for its heritage and tradition, but for its strong character and ability to offer a product that lives of differentiation from its competitors. It explains the idea of what do we want to be? and it fix goals and intentions for the future, without specifying how to realize them. Moreover it has to be a source of inspiration, a guide for the values of all the companys employees.
Today Fiat Grande Punto car is recognized for its fresh and lively style, for its all-Italian design and because it offers more tangible responses to customers. Since the beginning "innovation and emotion" have been Fiat Grande Punto key words: with this car, we try to make state-of-the-art technology accessible to everyone, offering "intelligent solutions" to simplify and improve life. This is also our promise for the future
The mission is a written declaration that has to define how to transform ideas and intentions into reality. It must have both a strategical and operational character (Adriano Freire page 170). It effectively gives an answer to several questions: Why the company exists? To offer intelligent solutions to simplify and improve life. What is the companys business? Automobiles Who are the companys customers or segments? Potentially every ones but in particular it becomes clear that its goal is to offer a competitive car in terms of quality, services and technology with an accessible price, focusing indeed on the low-middle market. Which is the product? The Fiat Grande Punto, characterized by innovation and emotion. Which competencies are required for the future? The company is will to continue on this path offering products with characteristics defined above in the text.
Giorgio Guarnieri, Sara Zerbinati
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EMPLOYEE
UNEMPLOYMENT RATE
As showed in the chart above, the unemployment lowered in the 2006, passing from 7.7% to 7.1%. The wages should have got advantages from this decrease, having grown the contractual bargaining power of workers. This was reflected in the growth of the family consumptions rate, increased from 0.1% of GDP up to 1.6%. The growth of the employment rate was influenced mainly by the regularization of the illegal workers. The real labour cost raised of a 0.6% in Italy while the European trend is a decrease of a 0.7% average1. The real tax of change (RTC) influenced the level of export and import. Its growth created favourable conditions to a increase of importation while a loss of competitiveness in exportation. (chart x)
1
Growth rate of the ratio: compensation per employee in current prices divided by GDP in current prices per total employment. Source: EUROSTAT
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RTC rate
Period
Chart 2 Source: Italian Ministry of Economics and Finance, RPP 2007
A decreasing trend in the combustibles prices is observed, with particular regard to the petrol price (See Chart in the Annex section 3). A contrasting trend is observable in the raw materials prices. Although the consumption price seems to have a little trend to the increase, a more volatile situation characterizes the production side. (Chart 3)
Consumption/Production prices
Raw mat.
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The inflation rate has levelled off at the UE average, being constantly around the 2.2%. During the period in which the combustibles price grew, the inflation did not suffer of it, highlighting the fact the companies generally preferred to reduce their margins instead than raising prices. Although the energy prices generally had an high impact on the inflation composition.
Contribution in percentage
The macro economic forecast provided by the Ministry of Economics highlight what follows. The employment growth should decrease at the level of 0.5%, as result of an industrial production slow down. The inflation should decrease to 1.5% because of a new stability of the petrol price and of the new politic of liberalization that should increase the competitiveness in several sectors, lowering indeed prices for the consumers. The GDP should grow of 1.7% in the four-year period 2008-2011. The growth will be influenced by higher consumptions and investments. The increase of competitiveness will drive the exportation growth, while the development of the private demand will result in an importation growth. The employment rate is expected to increase of a rate of 0.7%, lowering the unemployment rate under the 6%.
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Factors analysed
Tendencies
Positive impact
Higher consumptions. Higher investments. Lower prices for consumers. Increase of purchasing power.
Neutral impact
Negative impact
GDP
INFLATION
Decrease at 1.5%.
If the decrease is the result of production slow down. Risk of lower purchasing power in absence of inflation indexed wages
EMPLOYMENT RATE
Decrease of employment growth rate expected at 0.5%. Lower impact on inflation. Potential increase in cars usage.
PETROL PRICE
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Higher taxes do not influence ecological cars, that is to say Euro4 and Euro5; Higher taxation will influence the more polluting cars, such as Euro0, Euro1, Euro2 and Euro3; Cars over 100 Kw will pay an extra tax. As highlighted by many analysts, the auto sector is target of an extremely high taxation that generates high taxation yield to the state. The taxation effects all the life of the car, from the production to its demolition. (For further details see the Annex section x). 40 million of automobiles, the 38% of the total, are still Euro0 o Euro1, the most polluting cars. This represents an important environmental issue that has been faced in different ways. Some cities have forbidden the circulation downtown to those cars. Moreover they limited the circulation of the other cars, only to particular time of the day. Even if this protects the historical value and the environment of the Italian cities, it represents an disincentive to the use of the car. On the wave of what suggested by analyst and experts like the Fiats CEO, Sergio Marchionne, the government has fixed, in its financial act, an incentive to change the old polluting cars. Consumers who will buy a new car, giving back to the seller the old Euro0 or Euro1 car, will receive a bonus of 800 on the new car value and will not pay for two or three years, depending on the car capacity, the car stamp tax. This should result in a sales boost of new car, an increase of the taxation yield for the State (due to the Iva, the valueadded tax, and the matriculation tax paid on new cars) and a growth under the 0.5% of the GDP.2 Higher taxation on capital gains and strict controls on banking and financial operations should drive investors to a more careful decision when investing.
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Tendencies
Positive impact
Neutral impact
Negative impact
Increase
Stable, except for most polluting cars New incentive, in monetary terms, to buy new cars Government of small majority, highly fragmented in its composition.
Fiat produces innovative technologies, through it R&D department. Research are conducted in the Centro Ricerche Fiat (Fiat research centre) in which 890 people are employed. It outputs an average of 460 projects per year, fielding 80 new patents. Environmentally-friendly engines, innovative vehicle structures, electronic chassis control system, integrated transportation safety, environmental projection and advanced manufacturing methods are the fields where the Centro Ricerche Fiat concentrates its work, with the aim of safeguarding the environment and the health of consumer. Elasis is another highly specialized Fiat Research centre whose work addresses technological innovation, complete vehicle development, mobility and its environmental impact, and traffic safety. It employs 800 people. It is provided with sophisticated computer-aided design tools and advanced physical and virtual testing equipment which are based on an ability to develop and manage information system that puts Elasis in the front ranks of the worlds R&D centres. Moreover Fiat reengineered, in collaboration with Hp, its distribution to meet customers needs. An innovative sales support/customer relationship management (CRM) was developed. Fiat Link will integrate and enhance sales and service across 5,800 retailers in Europe. It allows Fiat to innovate not only in cars but also in services provided. The continuous technologies development, open always new path to improve the business management in order to reduce costs and enhance effectiveness. Adopting a customer perspective, the diffusion of technologies in their hands imposes to car producers to improve the products they offer to meet new requirements or, even better, unmet needs. In this perspective a collaboration with Microsoft was implemented.
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Factors analysed
Tendencies
Positive impact
Possibility to improve productions and management control activities Possibility to reduce costs Opportunity to satisfy unmet customers needs creating new products. Development of own technologies and patents. Possible base of sustainable competitive advantage
Neutral impact
Negative impact
NEW TECHNOLOGIES
High risk of obsolescence due to the short life cycle of new technologies High strategical risk in decision taking Heavy investment required
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Factors analysed
Tendencies
Positive impact
Lower costs (disposal, for product unit) Improve in public image, reduce risk of litigation
Neutral impact
Negative impact
ECOLOGICAL COMMITMENT
Increasing
Higher value More market opportunities Natural resources and energy conservation Less polhitants (waste, fumes, water..)
TRAFFIC RESTRICTIONS
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10 years trend
3000000 50 40 2500000 30 2000000 20 10 1500000 0 1000000 -10 -20 500000 -30 0
19 97 19 98 20 01 20 02 19 93 19 94 19 99 20 03 20 04 20 20 06 05 *e st im at ed 19 95 19 96 20 00
% growt h
Series2 Series1
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year
This year financial act, as already described in the paragraph 2.2.3, adopt a similar measure. Its goal is no longer to stimulate the economy, but to enhance the car park renewal. Moreover it is a lighter manoeuvring than the 1996 one, but it is expected to arise the level of car registrations up to 2,610,000 units, making, for the first time, the Italian market the second in Europe.
As showed in the chart 6, more than 5 millions vehicles are still Euro 0, the 15% of the total cars in circulation. The situation, from an ecological perspective, appears worst if we extend the analysis to Euro1 and Euro 2 cars, that together represents the 50% of the total car park, while Euro 3 the 30%. Considered that the Euro 4 car represents just the 10% of the total, adopting a company perspective, the eco-incentive is thus a big opportunity to increase, potentially, the sales in the next months.
Euro 2 30%
0 1 2 3 4
Chart 6 Car park breakdown. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered cars.
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The 70% of the circulating cars is fed by fuel, the 26% by diesel. The more eco-friendly car, fed by fuel+methan or fuel+gpl are only the 4%.
Fuel 70%
Chart 7 Car park breakdown by feed. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered cars.
Looking at the 2006 car registrations statistics (see chart 8), is possible to see an opposite tendency in which the diesel represents now the buyers preferred car feeding system, followed by fuel while the alternative feedings persist in being clearly the minority (1%). An incentive campaign, made by the government like the Swedish has done, should improve the diffusion of alternative fuel cars, like ethanol or hydrogen. The project need public and private investments for updating and modifying infrastructures (ex. fuel stations have to be provided, widely on the territory, with alternative fuels).
Fuel 40%
Diesel 59%
Others 1%
Chart 8 Market structure breakdown by feed 2006. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered cars.
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Analyzing the sector in terms of body type, what results is that a large majority of sold cars are sedan (63%), while Station Wagons follow with only 11%. The other important group are the SUV (Sport Utility Vehicles) and the mono-volume, both compact and small ones. (See the chart 9 below).
compact monvolume 8%
Sedan Station wagon compact monvolume small monovolume SUV cabrio and spider big monovolume coup multi-space combined
small monovolume 7%
SUV 6%
Others 5%
Chart 9 Market structure breakdown by cars body type. Own elaboration on the UNRAE data.
while 13% to rent companies as Hertz, Europe Car ext. Just sold to be used as taxi. the 0,15% are
Taxi 0,15%
Rent 13%
Chart 10 Market structure breakdown by use. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered cars.
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The car sales reflect the different economic development of the Italian regions, where the South part of the peninsula presents a lower economical growth, due to lack of infrastructures, investments and management culture background. The north-west has the biggest industrial districts on its territory, while the north-east and center are characterized by a wide diffusion of SME (Small Medium Enterprises). Having said this, the north-west and center regions are the most active in car purchase, while the southern and the Islands shows a smaller contribution. (see chart 11 below).
Market structure breakdown by geographical area
North-west 29%
Islands 8%
Islands
South 14%
Centre 29%
Chart 11 Market structure breakdown by geographical area. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered
In brief, the best opportunities in the market for Fiat are: Car park renewal, in order to substitute the Euro0, Euro1 and Euro2 with the support of Governmental incentives for new car buyers. Improve the development of diesel engines, for catching up its growing trends. Improve the development of fuel fed eco-friendly engines. Development of alternative fed engines, to be ready for future market changes. Focus on Sedan cars (63% of the market), marketed especially to privates (87% of car sales). The 78% of car sales are made in the North and Centre of Italy, with peak of 29% for in the North-West and in the Centre. South and Islands represents only the 22% of the market.
Giorgio Guarnieri, Sara Zerbinati
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Chemical 22%
Chart 12 Supply breakdown by product lines Source: own elaboration on Fiat data
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Most of suppliers are companies of Fiat Auto Group. Magneti Marelli produces components for lighting systems, exhaust systems, suspensions and shock absorbers, engine control units, and electronic systems. Teksid supplies engine blocks, cylinder heads and other cast-iron components for engines; cast-iron components for transmissions, gearboxes and suspensions; and magnesium bodywork components. Comau produces industrial automation systems for the automotive industry in the areas of product and process engineering, logistics and management, manufacturing, installation, production start-up and maintenance. Considered that about the 40% of these suppliers sales is warranted by Fiat purchases, Fiat itself exercises an important power on them. Moreover, Fiat changed its strategy in selecting its suppliers. Its continuous research for excellent suppliers and demands for technological compliance and environmental quality guarantees, led the Fiat Auto Group to set up a Supplier Quality Assurance (SQA) committee. Its mission is to assure optimization and standardization of best practices at the Group level, assuring standardization of all supplier evaluation and certification activities. This Fiats research for suppliers that could assure quality standards, puts even more pressure on them, increasing Fiats bargaining power. The big supplying companies failure to obtain quality certification as the ISO 14001, for instance, is no longer tolerable. Fiat extended its value of World Class Manufacturing towards its suppliers, demanding for no losses of any kind: zero accidents, zero services and quality defects, zero inventory, zero breakdown. In particular, the zero inventory requirement is the result of the production philosophy change to a Just In Time system. This requires the establishment of a information sharing platform with suppliers that could lower Fiats bargaining power: in fact, it could become difficult to find suppliers able to meet requirements as expected. This could have a counterbalance effect on the suppliers power, tending to increase it. However, we believe the bargaining power is still balanced in Fiat favour due to the factors described above in this section.
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a customer loyal to the brand. But loyal customers have an high demand for services and products quality, that means high bargaining power in their hands. Companies need to invest assets to meet those requirements.
Unsymmetrical information means that buyers, when purchasing a car, do not have the same information that producer and retailer have about the purchased good. The reason of this is that buyers, generally, do not have an adequate knowledge background to evaluate the technical characteristics of a car. The information they have is provided by the producer or by the retailer, who could easily deceive the consumer on particular aspects. This buyers lack of knowledge and the consequential unsymmetrical information, reduce the buyers power. For further details on the unsymmetrical information see annex 4. Considering the cost for buying a new car and the maintenance expenses, usually buyers have to carefully evaluate what can be considered an investment. Not everybody could effort the expenses to buy new cars. Moreover, many customers use financial services provided by the producers in their purchases. Indeed, they are not free to change
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whenever they want the car. For these reasons, we can affirm that buyers power is negatively effected by switch-costs. In brief, considered the factors analyzed above, customers power can be classified as medium.
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S E GME N T E 4%
SEGMENT F 0,5%
A B C D E F
Chart 14 Market structure breakdown by segment, 2006 Own elaboration on UNRAE data
High exit barriers from the business, oblige companies to do their best for surviving in the market. Thus, their strategic choices have big impact on the companys future and are consequentially risky. Indeed, we rate the competition among existing firms high.
B SEGMENT BREAKDOWN
FIAT GRANDE PUNTO 24% FORD FIESTA 8% TOYOTA YARIS 7% RENAULT CLIO 5%
FIAT GRANDE PUNTO FORD FIESTA TOYOTA YARIS RENAULT CLIO CITROEN C3 VW POLO OPEL CORSA+MERIVA LANCIA YPSILON+MUSA OTHERS
OTHERS 30%
Chart 15 B segment breakdown. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered
All the factors above analyzed, make of the Italian car market, and in particular the B segment, an extremely competitive market in which the strong position of Fiat can be source of different competitive advantages. Thus our rating for the market profitability, to complete the Porters five factors analysis, is medium-high.
Giorgio Guarnieri, Sara Zerbinati
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INFORMATION SEARCH
The potential buyer seek for information about the car. It is an high value product, no often purchased, thus it requires a careful evaluation through information analysis. Information are usually obtained from retailers, car magazines, TV car magazines, Motorshow, websites, online forums and word of mouth.
PURCHASE DECISION
Through the evaluation process discussed above consumers will reach their final purchase decision about brand, product, dealer and purchasing time. They reach the final process of going through the purchase action. The process of going to the shop to buy the product, which for some consumers can be as just as rewarding as actually purchasing the product.
POST-PURHCASE BEHAVIOUR
It is a common trait among customers to have doubt about the product they bought. It is at this stage that companies need to support the sale, through marketing activities, to make the consumer proud and sure of the product. Several factors influence the buyers decision: culture, personality, lifestyle, social position, marketing, advertisement and the decision center. Culture is defined as our attitudes and beliefs. It is developed during the life by the family, school, friends and other influences.
Source www.learnmaketing.net
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Personality influences the customers lifestyle. The Fiat customers should be a person of young spirit, who pay attention to design and has a taste for classic but at the same time innovative. For social position we mean all the factors that determine how a person is located into the society. It is influenced by culture, job and family. Some people look up to may influence their choices of purchasing a particular product or service. Reference groups are particular groups of people that indirectly have influence on other buyers decisions (followers). Marketing and advertisement make big effort in trying to gain customers preferences and trust. They are studied and implemented to influence the customers buying decision. Moreover Abraham Maslow hierarchy of needs theory sets out to explain what motivated individuals in life to achieve. He set out his answer in a form of a hierarchy. He suggests individuals aim to meet basic psychological needs of hunger and thirst. When this has been met they then move up to the next stage of the hierarchy, safety needs, where the priority lay with job security and the knowing that an income will be available to them regularly. Social needs come in the next level of the hierarchy, the need to belong or be loved is a natural human desire and people do strive for this belonging. Esteem need is the need for status and recognition within society, status sometimes drives people, the need to have a good job title and be recognised or the need to wear branded clothes as a symbol of status. Self-actualisation is the realisation that an individual has reached its potential in life.
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As showed in the figure 6 above in the text, when a consumer decides to buy a car, is influenced by some factor of the hierarchy pyramid of Maslow. The improvement of the car safety system offer a more efficient protection to drivers against car accident: usually people are aware of the probability to have an accident and of its possible consequences, indeed they see new car safety systems as an improvement of their own safety. Moreover car is nowadays a status-symbol: it is used, like other objects, as a symbolic sign of social power, representing an index of the social position achieved by a person. Finally it could allow a person to meet part of its esteem needs.
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250000
200000
150000
100000
Ford Fiesta
Lancia ypsilon
Toyota Yaris
Renault Clio
Citroen C3 Vw Polo Opel Corsa Opel Meriva 2005 Lancia Musa 2006
Chart 17 B segment top 10 breakdown. Own elaboration on the Transportation Ministry Centre of Data Elaboration (CED) information. Percentage on registered
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2.3.3.1 Ford
Ford Motor Company, a global automotive industry leader based in Dearborn, Michigan USA manufactures and distributes automobiles in 200 markets across six continents. With approximately 300,000 employees and 108 plants worldwide, the companys core and affiliated brands include Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, Land Rover and Aston Martin. Its automotive financing business is Ford Motor Credit Company. Vision
Our vision is to become the worlds leading consumer company for automotive products and services
Mission
We are a global family with proud heritage, passionately committed to providing personal mobility for people around the world. We anticipate consumer needs and deliver outstanding products and services that improve peoples lives.
Values
The customer is Job 1. We do the right things for our customers, our people, our environment and our society. By improving everything we do, we provide superior returns to our shareholders
Ford provides financial service through its own financing company: Ford Credit. It is considered the biggest automotive financing company in the world. It offers such a wide range of services that each customer can find the best solution to his needs. It is present in 40 countries serving 10 millions customers. In 2000 it financed sales and leasing of more than 4 millions cars. Ford provides assistance to its Italian customers through a network of 1,200 Ford Service assistance centres: maintenances, reparations are performed by specialized workers formed by the own Fords training programs. The warranty on the cars sold is a two years lasting one; if any problem would occur, the customer can get its car repaired for free all around the Europe in the Ford Assistance Centers. The warranty on the substituted components is of three years.
Giorgio Guarnieri, Sara Zerbinati
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range from 10,700 to 13,500; Titanium from 11,050 and 13,850; Ghia from 12,950 to 15,750; S from 14,200 to 15,650; ST standard price 16,500. Prices are variable in function of the motor power (Hp and capacity), feed system (fuel, diesel) and car body (3/5 doors). Fords presence in the European market appears stable at 8.3% of market share. In Italian B-segment, instead, it showed an increase of 9.2% compared to the 2005 result. The strategy adopted by Ford with the Fiesta is a product diversification with low prices, good quality, wide variety of colours and motors, and special warranty conditions sustained by a well known brand with a strong heritage in its background.
2.3.3.2 Toyota
Established in 1937, Toyota Motor Corporation is one of the worlds representative automobile manufacturers, producing vehicles in 26 countries (in each of the five continents) and marketing vehicles in more than 170 countries. The group produced in 2005 8 millions vehicles around the world. The workforce at the end of 2005 was of 280,000 employees. Vision
By manufacturing cars that reflect the needs of customers and society, Toyota will target sustainable growth and contribute to the development of the automobile industry.
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Mission
We want to be a company that continue to grow in any era and in any conditions. Bearing that in mind, Toyota in reinforcing the foundations of an unshakable growth platform while taking decisive management measures to grow earnings. Always welcoming change and eager to take on challenges, we are transforming the quality of our management and operations in preparation for making our next stride forward.
Toyota aims to sell 1.20 million vehicles in the European market by 2010; in 2005 they sold 995,200 cars, registering an incredible growth, equally distributed, since 2001 of 48%.4 To achieve that target, their strategy is to increase product appeal, sales capabilities and localization. Moreover, responding to the strong interest in environmental issues in the region, they will add to their offerings of diesel vehicles and hybrid models while actively advertising their merits and performance to grow vehicle sales. To advance localization, they will continue staged expansion of production capacity for vehicles and such major components as engines. The Italian subsidiary contribute to the corporate growth in Europe, considered that its sales grew of 30.23% since 20015. If we consider as index base the 1996, the growth of Toyota in the Italian market appears simply incredible: +759%. It grew from 15,192 sales to 130,507 in 2005. This growth was sustained by the development of a careful commercial network along the whole peninsula. Today Toyota dealers and assistance points are more than 200. One of Toyotas strength is its philosophy summarized in this motto: In the world men and autos need to coexist in harmony. This result in the extreme quality of car produced. The two famous principles, base of the philosophy are the Just in Time (JIT) and the Autoactivation. The JIT represents the search of the optimization and the synchronization of all production phases in order to manage in the best way, in other world, efficiently and effectively, the assets, ensuring the best quality of products. The Auto-activation created a revolutionary relation between man and assembly line, in which the man influences the machine rhythms, eventually correcting possible errors, and not the opposite, in order the ensure an always higher product quality.
4 5
Data source Toyota Shareholders Information: 2005 review. Data source www.toyota.it
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standard
equipment on all the Yaris. Other electronic control as TRC (traction control) and VSC (vehicle stability control) are available upon request. 4. High technology in all components. Available on all Yaris the new digital 3D instruments, onboard computer, CD
Fig. 7 The new Yaris
Prices range from 11,151 to 14,801. Only five colours and three motors (1.0 fuel fed, 1.3 fuel fed, 1.4 diesel) are available. The strategy adopted is a product differentiation in terms of quality, prices, services and warranty extension (three years or 100,000 Km). Although the variety of fitting-outs, motors and colour is restricted. The services provided by Toyota includes: assistance points open 12 hours per day, 6 days a week, including August, provided by qualified technicians; clear prices available for customers as well as a statement of their rights.
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2.3.3.3 Renault
The Renault group is composed by Renault, Dacia and Samsung Motors. More than the 60% of the shareholders equity is in the hands of privates, the 15.7% of the French State, 15% of Nissan and the remaining part is hold by the company itself or by employees. It has more than 350 commercial and industrial sites in 36 countries all around the world. The entire group employs 129,912 people while Renault 43,788. In 2004 it sold 2.5 millions cars in the world. The group has fixed the goal of 4 millions cars to be sold until 2010. Renault confirms its global attitude with the alliance made with Nissan in 1999. The Alliance develops and implements a strategy of profitable growth and sets itself the following three objectives: To be recognized by customers as being among the best three automotive groups in the quality and value of its products and services in each region and market segment. To be among the best three automotive groups in key technologies, each partner being a leader in specific domains of excellence. To consistently generate a total operating profit among the top three automotive groups in the world, by maintaining a high operating profit margin and pursuing growth. On the strength of the numerous synergies generated by the Alliance over the past five years in engineering, manufacturing, sales, IT and purchasing and the performance of both companies, Renault and Nissan are actively present on most of the major international markets. Renault has defined and published its goals into the "Renault Commitment 2009" : Quality : position next models among the top three of their respective segements. Profitability : achieve an operating profit margin of 6% in 2009. Growth : sell addition 800,000 units, the strongest growth in Renaults history.
The plan to reach those goals includes the launch of 13 new models and 13 "face-lifting" of existing ones. The resources to achieve the commitment will be $obtained by reducing :
Giorgio Guarnieri, Sara Zerbinati
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Purchasing costs : -14% in three years Manufacturing costs : -12% in four years Logistics costs : -9% in four years General and administrative costs : less than 4% of revenues in 2009 Total distribution costs per unit in Europe : -8% Optimize cost of investment : -50% target.
Renaults market share in Europe is 10.3% while in the italian B segment it reaches the 5%. 6
RENAULT CLIO
It is characterized by a sophisticated design both for the exterior and the interior. Tries to put emphasis on the driving pleasure, ensuring a surefooted roadholding in every weather conditions, thanks also to its good balance that gives to the driver a better impression of control. Ergomonics driving position contributes to the driving pleasure. It is roomy being
Fig. 8 The Clio III
certificated for safety standars by the NCAP with 5 stars, being also awared as the most safety car of the segment for children. The car is available with up to 8 airbags ; it is equipped with ABS and EBA. Optional incledes ESP, understeer control, additional cornering lights and tire pressure monitoring system. A considerable work went into aerodynamics and reducing friction and vehicle weight. As a result, fuel consumption is low and CO2 emissions have been reduced. A full 95% of vehicle weight is recyclable, putting great emphasis on the use of recycable plastics and renewable materials. Prices ranges from 11,101 to 22,951. Severals fitting-outs are available, as well motors (1.2, 1.4, 1.5, 1.6, 2.0 capacity, ranging from 65 Hp to 200 Hp) and feed system (fuel, diesel). In total are provided 50 different combinations of fitting-outs, motors, capacity, body (3/5 doors) and feed system.
6
All data about Renault are taken from the Renault Annual Report 2005 available on www.renault.com
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6.818 153,503
(4,209)
15,990
1,514
NET INCOME
$ Millions
(3,895)
11,681
3,453
SHAREHOLDERS EQUITY
$ Millions
10,700
89,899
19,661
CASH DIVIDEND
$ per share
DEBT
$ Millions
PROPERTIES
$ Millions
INVENTORIES
$ Millions
INVENTORIES
% assets
Table 5 Competitors financial analysis Own elaboration. Source: competitors 2005 year reviews.
The world sales could be a wrong indicator of the competitive potential because, for example, Toyota and Ford are much more oriented to non European markets than how Renault is: it sales are more concentrated in Europe although growing its international
Giorgio Guarnieri, Sara Zerbinati
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expansion through acquisitions (Dacia, Samsung Auto) and alliances (Nissan). The Renaults market share in Europe is of 8.7%, Fords 8.2% and Toyota 5.6%. In the Italian B segment, instead, the market share are in order: 5%, 8% and 7%. Toyota and Ford sells about three time more cars than Renault around the world and their revenues are result of this situation. Although the operating margin suggest that Toyota and Renault run their business much more profitably while Ford shows a negative operating income. What actually saves Fords business are the non-automotive business units that allows the group to obtain positive results and even to distribute dividends to shareholders. The incredible data about Ford is its debt, better definable by using the debt/equity ratio that highlights a debit 12.5 times higher than its equity. Toyota and Renault, instead, seems to shows definitely a more solid financial position. Moodys, Standard&Poor (S&P) and Fitch rate negatively Fords actual position and its outlook, remarking a negative trend. Toyota and Ford have a wide assets of properties (including plants, equipments and others), four times larger than Renaults. Although the French company invests a lot in R&D, the 5.5% of revenues, while Ford and Toyota respectively the 5.2% and 3.9%. Moreover a negative index of Renault is the inventory level, quantifiable as the 8.6% of assets, fact that could suggest that a more efficient management should be implemented for reducing it. In brief, all the competitors selected for our study have peculiarity in their financial positions. Toyota appears the biggest company in terms of assets and financial stability (rated AAA by Fitch, Aaa by Moodys with stable outlook) while Ford has wide resources but a fragile financial stability effected by the highest debt level; Renault appears as a smaller competitor, but solid and efficient as confirmed by the rating (Fitch: BBB+; Moodys: Baa+; S&P: BBB+; they all rate the outlook as stable).
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2005 FIAT
2004 FIAT
1,697,300 46,544
19,533 (818)
19,695 (1,412)
2,215
(585)
NET INCOME
Millions
1,331
(1,634)
SHAREHOLDERS EQUITY
Millions
9,590
9,413
DEBT
Millions
PROPERTIES
Millions
INVENTORIES
Millions
INVENTORIES
% assets
The core market of Fiat is Italy: this explains why the world sales appear definitely lower if compared to competitors. The market share of Fiat in Italy is 24%, being leader in A and B segment. The 2005 revenues increased of 2%; although they suffered a slight decrease because of a negative result of the Automotive sector, result of the first nine months trend,
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partially recovered by the last quarter sales. The operating result was positive by 2.2 billions euros compared with an operating loss of 585 millions euros in 2004. This result was effected by the extraordinary gain of 1.1 billion euros from the General Motors settlement. Although, the operating income of the automotive sector remained negative (818 millions euros), even if increased of 42%. The consolidated net income of 2005 was positive of 1.4 billion euros, against a loss of 1.6 billion euros of 2004. In 2005 the debt amounted to 3.2 billion euros having been decreased of 65%. This result in the improvement of the ratio debit/equity from 2.59 to 1.93. When writing this paper, only the 2005 annual report was available. Considered the volatility of the automobile market, we believe that an analysis of the first six months of 2006 gives a better indication of the market trends and of Fiats business evolution. Net revenues of first nine months of 2006 showed an increase of 13.5% compared to the same period of 2005. This result has been achieved especially through a sales boost of the automobile sector. Its revenues increased of 25.5%; the number of sold cars increased of 18.7%, scoring +22.5% in Europe, +26.5% in Italy while the market shows a stable and reduced trend of growth. The ordinary operating income was of 1.4 billions compared to the 1.85 billion euros of 2005. The result of the previous year was affected by the extraordinary gain obtained by the resolution of the Master Agreement with General Motors. The Fiat ordinary operating income was of 196 millions euros, increased of 498 millions compared to first nine months of 2005, when a loss of 302 millions euros was scored. The debt was lowered of 600 millions euros, resulting in a better net debt/equity ratio (0.27). In brief 2006 was a positive year for the group and in particular for Fiat Auto that is growing quickly in all its index, definitely going out from the wave of the past year crisis. The entire situation is reflected in the rating assigned to Fiat by the most important rating society in the world: Fitch, Moodys and S&P. The positive outlook expressed by the rating companies represents a chance for enhancing the ability of attract investors funds. MID-TERM FITCH MOODYS S&P BBBa3 BB OUTLOOK POSITIVE POSITIVE STABLE
Table 7 Fiat Rating Source: www.fiatgroup.com
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For adding value to the final customers product, Fiat works on several areas to meet this target.
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Direct materials: commodity sector teams were created to realize purchasing efficiency and technical synergies.
Raw materials: the group increased the level of centralized purchasing of raw materials, especially of steel.
Supplier quality assurance: common processes were defined for qualification of new suppliers. Its mission is to assure optimization and standardization of best practices at the Group level, assuring standardization of all suppliers evaluation and certification activities.
Transport and logistics: two cross sector teams (inbound and outbound) were created to work on targeted projects in order to realize efficiencies and synergies in negotiations processing.
2.4.2.2 Production
The Grande Punto is produced in two Italian plants: Mirafiori, in Turin, and the Sata Plant in Melfi. Considered the favourable demand trend, Fiat has took action to increase plants utilization. These actions were taken with an agreement of employee representatives and trade unions and resulted, for instance, in the increase of the number of shifts, reintroducing a six-day working week in Melfi, specifically to ramp up production of the Grande Punto. If a capacity underutilisation at its plants would occur, due to lower sales volumes, Fiat handle it by using the Cassa Integrazione Guadagni (Temporary Layoff Benefits Fund). Actually the output of Mirafiori plant is of 1,000 Grande Punto units per day, 5 days a week. The Melfis one, instead, is of 1,400 units per day, 6 days a week. Moreover, in less than one year, there has been a 12% increase of productivity, in terms of hours per car.
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From the top to the bottom: Fig. 10,11,12 In order: Fiat Mirafiori view, Grande Punto assembly line, Grande Punto assembly line 2 Sources: www.fiat.com
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2.4.2.3 Distribution
Fiat distributes its cars through a network of 3,966 points of sale around Europe. The strategy adopted by Fiat includes three main points: territory coverage, qualitative presence and mandate attractiveness. Fiat has a strong presence on the Italian territory, composed by own points of sale and private dealers. In fact when a proper partner is not available, Fiat invests directly to establish the point of sale. This happens especially in metropolitan areas, in order to set standards for qualities in sales and services. It is remarkable that in the last 18 months, 90 of the new partners that joined Fiat came from competitors networks. In 2006 were opened two
Flagship Stores. The Flagship Store is a new concept created by Fiat: the idea is to create a polyvalent space, in which combine sale and after-sale services, convention room, training academy, caf and merchandising. For example the Turin Flagship Store is a 70,000m2 surface, obtained by a non utilised part of the Mirafiori plant. There cars are exposed in a 2,300m2 12,000m2
Fig. 13 Mirafiori plant. Source: www.fiat.com
services. It has an average of 1000 visits and 300 quotations per day. In the next three years, new opening are planned in the European strategic cities as London, Munich and Paris. To sustain its brand image, Fiat is working hard to make its presence not only spread but also of quality. For achieving this goals they are improving the dealer identity by enhancing the vehicle presentation, offering test drive and increasing the salesmen preparation.
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The key to have a network of higher quality, is to make the mandate more attractive in order to find good partners. For doing this Fiat is implementing a strategy to improve the brand appeal and to increase the dealers profitability. In order to meet this goal, Fiat has developed in collaboration with HP the FIAT LINK, a system that support customer relationship management, integrating and enhancing sales and services across 5,800 retailers in Europe. Thanks to this new and innovative system, a customer will be able to receive continuity of service from any Fiat retailer in Europe. The dealer will have instant access to the customers preferences, registered by the salesman on a notebook since the first contact with him. By enhancing the customers buying experience, Fiat expects to strengthen its brand and fuel growth in sales. At the same time, Fiat and its retailers have the potential to lower costs.
2.4.2.4 Marketing
For the launch of the new Grande Punto, Fiat has made a strong advertisement campaign through commercial, magazines and boards. It was based on the idea of emotion, using as soundtrack a masterpiece of the Italian music, loved by all generations. The car has always appeared in the sport version, coloured in red, going through a environment characterised by soft colours. The red, symbol of passion and emotion, catches the watchers eyes. Moreover the slogan adopted was based on a word joke: Punto. E basta, meaning that Punto is enough (Punto in Italian means fullstop). This kind of advertisement resulted very effective, also thanks to its intensity in terms of presence.
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2.4.2.5 Services
Since some year ago, Fiat was well known for the weak level of services provided to customers. For this reason, considered the entire new strategy based on the brand empowerment, Fiat today positions the customer care at the center of its value proposition. Its aim is to raise the service level to best-in-class standards, reducing also costs for the customers as the ones for courtesy cars, while raising the customer satisfaction to the best level. The goal of a customer care is to takes in charge customers request, needs, expectations and to give them answers. One of the new activities promoted by Fiat is CIAO FIAT, an international toll-free telephone number for its customers. The center handles about 700,000 multi-channel contacts (telephone, Internet and others) in 14 European Countries. It staff includes about 250 native speaker operators.
2.4.2.6 Infrastructure
Considered the nature of the elements characterizing an infrastructure, we decided to analyze them in the section on the SWOT analysis.
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Ferrari S.p.A, President of the Bologna International Trade Fair, Vice President of UNICE (Union des Industriels de la Communaute Europenne), member of CNEL (National Council For Economics and Labour), member of the boar of directors of different companies as La Stampa (Italian national newspaper), Tods, Indesit Company, Le Monde. He is awarded of the Cavaliere del lavoro title, and he received five Honoris Causa degrees. Sergio Marchionne grew in Canada where he began to work as fiscal expert at Deloitte Touche. Executive Vice President of Glenex Industries and others roles before joining the Swiss company Algroup in which he became CEO. He joined Fiat in may 2003 as Director, becoming CEO of Fiat S.p.A in 2004 and since 2005 Fiat Auto CEO. He is also Chairman of CNH Global, of Banca Unione di Credito, of SGS SA, of ACEA (European Automobile Manufacturers Association). In 2005 the investment in training for development of professional skills was of 90 millions, 2,1% of the wages. Training activities, handled by the Fiat Group company for Training, Isvor, involved about 89,000 employees, for a total of 400,000 hours. Fiat compensation is based on performance indexes, in order to reward talent, to attract valuable recruits, motivate employees, ensuring that they identify with the companys goals. For this reason the compensation is divided in basic, short-term and long-term. The short-term compensation is added to the basic one and it is paid to professionals annually, tied to their performance and that of the company. The annual bonus depends on the employees role in the company. As long-term compensation executives are eligible to participate in stock options plans.
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STRENGHTS: 1. New technology Heavy investments in R&D New hi-tech applications in projecting, designing and producing processes. Important collaboration with Microsoft Now able to meet more effectively customers needs of the B segment 6 ports car: 5 traditional + 1 USB for connecting electronic equipments to the car system (e.g. mp3 reader) Hand-free communication (Blue & Me system) All these features offered for an accessible price. High market share in the Italian B segment: 24%
2. New product
3. Market share
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WEAKNESSES: 1. BRAND IMAGE To be recovered and improved after year of overlooking. The strategy adopted is expected to produce the following result in terms of brand awareness, image and market share
The figure 18 shows the market share in connection with other two indexes relative to the brand awareness and image. It appears that Fiat target is to growth on all dimensions, obtaining a better image than Seat and getting always closer to the main competitors, VW, Ford and Toyota. The most recent indexes about the brand image (source Fiat audit) shows that the company is on the right path, having improved it in all the main European countries, as well as the market share. 2. FINANCIAL POSITION Still high debt level, although decreased of 2/3 in 2005 (detailed in section 2.4.1) Returned to register profit only in 2005 after 17 consecutive quarter of net loss. 3. DELIVERY PUNCTUALITY The company moved only during the last years to a JIT supplying strategy from a traditional one.
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The traditional strategy resulted in bad punctuality to the final customers in the past, and large stocks to be handled since the production did not respond effectively to the market demand.
OPPORTUNITIES: 1. TRAFFIC RESTRICTIONS Limitations to old car circulation (Detailed in sections 2.2.3 and 2.2.5) Development of new engines driven by alternative energies to petrol (ethanol, hydrogen and others). THREATS: 1. HIGHER TAXATION Increasing taxation on car property (detailed in section 2.2.3 and annex 3), personal income and capital gain. 2. ALTERNATIVE TRANSPORTATION DIFFUSION Public transportation, motorcycle and similar (detailed in section 2.3.1.3) Increasing price per barrel of petrol would result in higher fuel prices for vehicle users. 3. PETROL PRICE INCREASE
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In identifying the KSF for Fiat, we analyzed two factors that influence them: the first are the key purchasing factors on the customer side; the second are the competition factors, in other word how competitors respond to the customers needs. The key purchasing factors that we have identified along our research are: price, demand for services and safety, technology and image. Regarding the price, competitors developed strategies with the aim of rationalizing processes. This has been made, for example, trough the implementation of Just In Time systems and the development of integrated logistics. For meeting the customers demand for services and safety, the rival car makers constantly develop safety innovations and improve sale and post-sale services. Moreover, technology is the key for differentiating the products in such a competitive market. Finally, an important aspect of competition, is the image that producers transmit to the public of their brands: this is mainly made through the implementation of advertisement policies. Having said this, the KSF for Fiat are: 1) REDUCE OPERATING COSTS 2) IMPROVE SERVICES QUALITY LEVEL; GET INTERNATIONAL CERTIFACTIONS FOR CARS SAFETY. 3) INNOVATE MORE THAN COMPETITORS. 4) DEVELOP AN EFFECTIVE COMMUNICATION STRATEGY.
Giorgio Guarnieri, Sara Zerbinati
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In its strategy Fiat has opted for a product development, in order to face the increasing competition in the market. The new product is the Fiat Grande Punto introduced in the market in 2005. The car was developed following three main lines: to create a fresh design, to improve quality and to offer technology innovations. The design needed to be innovative, fashionable and of style to attract the largest number of customer. In the past Fiat cars were known for their simple design, simple mechanics, medium-low quality and low price. With this car, that is just one of the numerous new car launched in the market, the producer tried to change the idea people have on the brand Fiat. For this reason Giugiaro, a world famous designer, studied for this low market car a rich design. Furthermore, the second idea was to offer to the public a car of higher quality: this passed through a better engineering, better components and better control on quality. The aim, did not remain a purpose, instead it resulted in a 27% reduction of warranty costs, only in the 2005, year of the Fiat Grande Punto launch.
Fig.21 Quality and safety 1 Own elaboration on Fiat
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Moreover, in one year there was a decrease of 50% of the electric check defects identified on Grande Punto in comparison with the number of the ones detected on the old Punto. The bigger efforts made in the engineering projection phase, gave result in terms of quality, warranty cost reduction and also of safety. In fact, the Grande
Fig. 22 Quality and safety 2 Own elaboration on Fiat Data.
best safety ranking (five stars) by the EuroNcap, a European society that certificates the safety degree of all cars in the market. An example of the technology innovations introduced on the Grande Punto is the Blue&Me system, developed in collaboration with Microsoft. It allows the driver to increase its safe in conduction, because if the mobile phone is equipped of Bluetooth, the car blue system recognizes it; in this way, the driver can leave the mobile in its jacket, or wherever he want, being able to receive the call hearing it from the amplification system. If an SMS is received, the car system read it with a prefixed voice. All the information about SMS and callings are displayed in front of the drivers eyes next to velocity indicator. All the commands for callings are on the wheel. In this way, the driving experience become always more safety: the driver can keep its eyes on the road while being able to speak, to know what is written in an SMS without moving the hands from the wheel. Moreover, the car is equipped with a USB port that allows the customer to connect to the car every kind of electronic staff, including MP3 reader for listening the music stored on it, directly on the car audio system.
Fig. 23 design by Giugiaro Own elaboration
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Fiat adopted a competitive strategy that is a mix of defence and attack. Part of the attack can be considered the development of retailers network, the heavy investment in advertisement and the R&D expenditure. Instead, the defence strategy is implemented by cost reduction and differentiation. The development of the retailers network has been detailed in the section 2.4.2.3 of this work, the advertisement policy in the 2.4.2.4 and the R&D in the 2.4.2.8 In brief, the retailing network is based on the territory coverage, through private points of sale or own stores in strategic cities if proper partners are not available. The strategy includes the enhancing of the presence quality, closing the less productive points of sales and providing training programs for retailers in order to increase their qualitative standards. The advertisement campaign is made on TV, newspapers, magazines and boards. The investment in R&D is the 3.5% of net revenues. It is carried out by two groups companies: the Fiat Centro Ricerche and Elasis. The cost reduction strategy includes different activities: rationalization of internal processes and establishment of alliances and share protocols. For rationalizing the internal processes the company has adopted four methods in order to achieving four targets: zero waste, zero defects, zero breakdowns, zero inventory. Fiat has
Giorgio Guarnieri, Sara Zerbinati
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done this keeping focused on its values of people involvement, value creation and customer satisfaction.
In order to lower costs without compromising the brand, Fiat enhanced its corporate synergies, utilizing common part in car building. This resulted in a reduction of more than 10% in costs.
100
Specific Components
90
80
20%
Internally shared components
Specific components
70
60
Powertrain
50
40
30
Platform
40% 35%
Shared Platform
20
10
Stand alone
Shared
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For increasing customers fidelity, Fiat developed a strategy with a mix of image and differentiation. Part of the image strategy can be considered public relations policy, quality and sponsorship. Instead differentiation concerns about the positioning, the design and training programs. To improve the brand image Fiat used a brand stretching tactic. They made exclusive clothes and shoes with Fiat logo. Some of the most popular Italian people appeared in public wearing them. Fiat is also involved in the organisation of glamorous events and in sport sponsorship specific for different target: figure skating galas, snowboard contests, Olympic Games and others.
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Quality policy and design (beginning of section 3), training (in paragraph 2.4.2.7) have been discussed previously in the text. Fiat differentiates its brand through product characteristics and prices. In particular Fiat has raised its price, passing from a situation of 1,200 less than direct competitors to an average of 200 less. This is shown in the table above, in which it is illustrated the goal of Fiat regarding the new positioning to be obtained until 2008. The strategy is to create a brand less linked to tradition in favour of modernity, the products and distinctiveness through characteristics higher prices.
Fig. 33 Fiat positioning. Source: Fiat Data
increasing
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30
Punto G. Punto
25
percentage
20
15
10
Chart 19 Age breakdown Grande Punto vs. Punto buyers. Own elaboration on Fiat Data.
49
48
47
46
45
44
43
42
41
Punto
G.Punto
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5. CONCLUSION
After the big crisis that affected Fiat since 2000, we can now say that the future for the Italian car maker appears bright. The product introduced in the market in 2005, Fiat Grande Punto, went beyond every forecast, becoming the driving element for the Group rebirth. The product is a total success, in terms of sales but also in terms of costs. The company is working hard on re-engineering its processes, lowering all costs. The goal is to increase margins and to drain the heavy industrial debt that has been one of the main factors that almost knocked-down the company. Not only the Italian market is responding positively: Fiat is attacking the whole European market, with the aim of achieving a 10% market share in Europe, bypassing historical rivals such as Renault and Peugeot. Although the situation today is more than positive, a lot has still to be done to transmit to customers the new Fiats values. This will not take one ore two years. For this reason Fiat needs to work on a long time view. On the other hand, the financial position necessities of short-term liquidity to give a certain stability to the company. As conclusion of our work, we want to include the portfolio analysis, as result of all the topics discussed along the entire project. The model used is the ADL matrix, that combines the analysis of the business intensity with the competitive position. Indeed, what resulted is that today, Fiat has a strong competitive position in the B segment, although the product life stage has not yet reached the maturity. Moreover, the Grande Punto represents the key to success for Fiat, having indeed a big dimension into the matrix. The evolution forecasted by us for the Grande Punto is to remain still in the A sector, having a slow increase directed to the top right, result of the consolidation of its position in the market. The B segment saturation and the strong competition within its protagonists, will not allow Fiat to expand its market share more than the 30%.
Giorgio Guarnieri, Sara Zerbinati
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ANNEX 2
ITALY 3,5 ANNUAL AVARAGE RAT 3 2,5 2 1,5 1 0,5 0 1997 1998 1999 EU (25)
INFLACTION RATE
2000
2001 YEAR
2002
2003
2004
2005
+1,3%
Nominal Real
ANNEX 3
The car taxation in Italy
The 46% of the inland revenue returns derives from the taxation on fuels. The first taxation in made when the car is bought: the added-value tax (Iva) is calculated as the 20% of the car value; a local taxes, the IPT is paid for registering the car into the public registry of transportation. The average of the IPT is of about 180. Local authorities are free to arise this tax up to a limit of 20% more. Other 75 are paid as stamp tax. The road tax bollo auto is paid for being owner of car, independently from the effective use of the car itself. It is paid proportionally to the maximum car capacity and to the level of pollution (from the most polluting, the Euro0 increasing to the most eco-compatible Euro5). Local regions are free to arise this tax within a 10% range. A extra margin is charged for each Kw over the 100Kw.
Pre reform From 0 to 100 Kw EURO per Kw EURO 0 EURO 1 EURO 2 EURO 3 EURO 4 EURO 5 2.58 2.58 2.58 2.58 2.58 2.58 3.00 2.90 2.80 2.70 2.58 2.58 Over 100 Kw + 50% 4.50 4.35 4.20 4.05 3.87 3.87
The fiscal burden on car insurance is often not perceived by consumers, because it is incorporated into the insurance premium. It is a tax of 12.5% of the insurance premium, plus a 10.5% paid to the National Healthcare System (Sistema Sanitario Nazionale) for compensating the incurred expenses of the hospitals for recovering car accident wounded. The imposition on fuel is double: the excise tax, or production tax, that is translated to the final consumer; moreover the consumer itself pay a 20% value-added tax (Iva) calculated on the industrial price plus the excise tax. A 20% of Iva is paid also on motorway tolls, parking, repairs and maintenances expenses.
Giorgio Guarnieri, Sara Zerbinati
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ANNEX 4
The Akerlof theory
The paper by Akerlof describes how the interaction between quality heterogeneity and asymmetrical information can lead to the disappearance of a market where guarantees are indefinite. In this model, as quality is undistinguishable beforehand by the buyer (due to the asymmetry of information), incentives exist for the seller to pass off a low-quality good as a higher-quality one. The buyer, however, takes this incentive into consideration, and takes the quality of the good to be uncertain. Only the average quality of the good will be considered, which in turn will have the side effect that goods that are above average in terms of quality will be driven out of the market. This mechanism is repeated until a no-trade equilibrium is reached. As a consequence of the mechanism described in this paper, markets may fail to exist altogether in certain situations involving quality uncertainty. Examples include the market for used cars However, not all players in a given market will follow the same rules or have the same aptitude of assessing quality. So there will always be a distinct advantage for some vendors to caters low-quality goods to the less-informed segment of a market that, on the whole, appears to be of reasonable quality and have reasonable guarantees of certainty. This is part of the basis for the idiom, buyer beware. Akerlof uses the market for used cars as an example of the problem of quality uncertainty. There are good used cars (cherries) and defective used cars ("lemons"). The buyer of a car does not know beforehand whether it is a good car or a lemon. So the buyer's best guess for a given car is that the car is of average quality; accordingly, he/she will be willing to pay for it only the price of car of known average quality. This means that the owner of a good used car will be unable to get a high enough price to make selling the car worthwhile. Therefore, owners of good cars will not place their cars on the used car market. The withdrawal of good cars reduces the average quality of cars on the market, causing buyers to revise downward their expectations for any given car. This, in turn, motivates the owners of moderately good cars not to sell, and so on.
Giorgio Guarnieri, Sara Zerbinati
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Europe, soon became the emblem of Italian automotive industry and one of the bestknown sites in Turin. In those years Fiat diversified its activities to include the iron and steel industry, and the railway, electricity and public transport sectors, becoming the exclusive supplier of buses to the SITA company in Florence. The Great War ushered in a decade of complex and profound social change. And Fiat was not immune to this, with its factories being occupied by the workers in September 1920. In November of the same year Giovanni Agnelli was appointed Chairman of the Board of directors and Guido Fornaca Managing Director. After two years during which Fiat was forced to contain costs, reduce the workforce and cut wages, in 1923 the new Lingotto factory became operational and growth resumed. The Fiat 501 was launched followed by the 505, the 510, the 519 and in 1925 the four-seater 509 made its debut. The Fiat management understood that there was a close connection between the expansion of the company and the development of mass production in Italy: increased industrial output meant a higher standard of living, social progress and higher consumer spending. With that in mind, Fiat created Sava, a consumer credit company whose objective was to enhance instalment sales (so-called hire purchases). For the first time advertisements also addressed women: in posters, newspapers and corporate publications women appeared as potential buyers. Fiats victories in motor racing, the crossing of the Sahara desert by car and rallies in Latin America helped to stimulate interest in this modern means of transport. In those years Fiat introduced health care services for its employees, it set up the Fiat Apprentices School and a number of associations such as the Fiat Sports Group, holiday camps in the mountains and the Employee Association. Many of these institutions have kept pace with social change and are still active today. Fiat continued to invest in Italian and foreign companies and IFI (Istituto Finanziario Industriale) was set up to coordinate this complex network. In 1924 the Moscow plants became operational. They manufactured cars and trucks under Fiat license on the basis of a 1913 project. Mussolinis call for autarchy forced the company to rescale its international expansion plans and focus on the domestic market. During the thirties, trucks and commercial vehicles, including diesel-powered vehicles, underwent considerable technological development and the aeronautical and railway
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sectors also grew significantly. Fiat produced the worlds first high volume runs of selfpropelled electric and diesel trains for the Italian state railways. In 1928 Vittorio Valletta was appointed Fiats General Manager. In 1935 Senator Giovanni Agnelli suffered the loss of this son Edoardo. In 1934 the company designed a lowpowered car: the 508, also known as Balilla or low rate due to its reduced fuel consumption (eight liters for every 100 kilometres). Overall, a total of 113,000 units were produced, including a sports version (508 S) and a 4-speed gearbox version (71,000 units). 1936 was the year of the debut of the Fiat 500 Topolino, designed by Dante Giacosa. It was the smallest utility passenger car in the world, and from that year until 1955 a total of 510,000 units were produced. Fiats commitment to mass production was reaffirmed when in 1937 construction of the Mirafiori plant began in Turin. This plant was to introduce the most advanced concepts of industrial organization in Italy. Inaugurated on May 15, 1939, Mirafiori employed 22,000 workers on two shifts, a considerable number if one considers that Fiats total workforce at the time numbered approximately 55,000. Service centers, workshops and specific industrial initiatives started to be set up in Spain, Egypt, Poland and France. During the Second World War the production of cars was drastically cut while there was a fivefold increase in the number of commercial vehicles produced. During the war, carpet bombing badly damaged Fiats plants but failed to paralyze production. Both during and immediately after the war, the assistance Fiat offered its employees helped to make up for the deficiencies of Italys public services: the welfare office provided linen, shoes and firewood to employees, while Fiat canteens distributed 100,000 meals every day. Senator Giovanni Agnelli died in 1945 and in July 1946 Vittorio Valletta was appointed Chairman of Fiat. Valletta was faced with the task of bringing Fiat up to date with American technology and introducing mass motoring in Italy. With the aid of the Marshall plan, reconstruction of plants was completed in 1948. Workforce increased from 55,674 to 66,365, and profits, which had stagnated during the war, had reached break-even after 1943, and were at loss in 1946, began to show an upward trend in 1948. During the postwar revival, Fiat launched the Fiat 500 B berlinetta and giardinetta, the 1100E and 1500E models, and a car with a monocoque body, completed new in its design and mechanics, the Fiat 1400. For the first time ever, a standard heating/ventilation system was installed on the 500C. In 1953 the first diesel-powered cars made their debut.
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Research in the field of marine engines and airplanes continued and in 1951 Fiat produced the first jet plane: the G 80. New opportunities emerged with the construction of a turbocharged car prototype and activities in the nuclear field. In 1956 Fiats G 91 won the Nato tender for the manufacture of a tactical fighter plane. In 1955 the Fiat 600 was launched. Over 4,000,000 units of this utility car would eventually be produced. Its launch was celebrated by a cavalcade of multicolor Fiat 600s parading through the streets of Turin, symbolically announcing the era of mass motoring in Italy. Two years later the new 500 was launched and in the end 3,678,000 units of it were produced. During this decade the overall number of employees increased from 70,000 to 80,000, and production rose from 70,800 cars in 1949 to 339,300 in 1958. Between 1956 and 1958 the size of the Mirafiori plant doubled and at the end of the sixties it employed over 50 thousand workers. Meanwhile production of tractors and construction machinery also expanded. Operations abroad also increased, with new plants being built in South Africa, Turkey, Yugoslavia, Argentina and Mexico. Fiats plant engineering and construction operations, headed by Impresit, experienced urging international expansion: the Kariba hydroelectric plant on the Zambesi, the Dez dam in Iran and the Roiseires dam on the Blue Nile in Sudan, the rescue of the ancient Egyptian temples at Abu Simbel, and the motorway tunnel of the Gran San Bernardo. Those were the years of Italys economic miracle. Between 1958 and 1963 gross domestic product increased at an annul rate of 6.3%; the automotive industry was the driving force of the economy. Between 1959 and 1968 Fiats output increased from 425,000 to 1,751,400 cars, and the ratio between inhabitants and cars went from 96 to 28 inhabitants per car. Exports also boomed: from 207,049 to 521,534 cars. The production of commercial vehicles and tractors also increased from 18,968 units to 68,200 units and from 22,637 to 52,735 units, respectively. Workforce doubled: from 85,117 to 158,445 employees, with a more pronounced increase in the number of blue collar workers with respect to white collar workers. In 1964 Fiat launched a widely popular new utility car, the Fiat 850 that was soon followed by two bigger models, the 124 and the 125: the first Fiat cars to adopt in 1968 the rhomboid Fiat trademark. In 1966 Giovanni Agnelli, grandson of the founder, became Chairman of the Company.
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In 1969 Fiat decided to strengthen its involvement in the South of Italy, where the Company could already count on facilities located in Reggio Calabria, Bari and Naples. So plants for the production of cars were built at Termini Imerese, Cassino and Termoli, while the Sulmona, Lecce, Brindisi and Vasto plants were to satisfy special production requirements. The economic boom was followed by a long period of social unrest: turmoil inside the factories reached its peak in 1969, with a total of 15 million strike hours. The tidal wave of conflict was to have drastic repercussions on Fiats profitability. The 127 was launched in 1971, the first Fiat car with front wheel drive which was distinctly innovative for its time. The car was a huge success and in 1974 the one millionth 127 rolled off the assembly line. The oil crises and technological innovation led to an everincreasing emphasis on automated manufacturing processes: as early as 1972 Mirafiori was using 16 robots on its 132 model production line and in 1974 the Cassino plant was robotized as well. 1978 saw the introduction of Robogate, the new robotized, flexible bodywork assembly system. This system, installed in the Rivalta and Cassino plants, was designed by Comau which would soon become world leader in the field. In 1978 Lancia S.p.A. was merged into Fiat S.p.A., while the Lancia trademark was preserved for marketing purposes. In 1979, the Automobiles Sector was transformed into an autonomous company with Giovanni Agnelli as its Chairman and it included the Fiat, Lancia, Autobianchi, Abarth and Ferrari brands. At the end of the seventies, Fiat adopted a holding structure. The various manufacturing operations, which had been divisions during Vallettas period, converged into independent companies which headed specific Sectors. Alongside the traditional Fiat businesses represented by Fiat Auto, Fiat Ferroviaria, Fiat Avio, Fiat Trattori, Fiat Veicoli Industriali, other Group activities such as Fiat Engineering, Comau,Teksid, Magneti Marelli,Telettra were also established as independent companies. Cesare Romiti, who had joined Fiat in 1974 as Chief Financial Officer, became Chief Executive Officer of the Fiat Group in 1980. In these years both Fiat Ferroviaria and Iveco significantly expanded. Fiat Ferroviaria developed cutting-edge technologies for the construction of tilting, independent wheel railway bogeys that were to culminate in the production of the Pendolino, a high-speed train thanks to which Fiat was to win important tenders in many European countries. Iveco became the international trademark for all of Fiats commercial vehicles operations.
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Set up in 1974, the Iveco trademark included the Fiat, Om, Lancia, Magirus and Unic brands, and from 1991 the Spanish Pegaso brand. In 1983 the Fiat Uno was unveiled at Cape Canaveral: this car was to represent the beginning of a new era for Fiat Auto. It was radically innovative in its use of electronics and alternative materials and for the adoption of a clean engine, the Fire 1000. Overall, a total of 6,272,796 units will be produced. The following year Fiat Auto S.p.A. acquired Alfa Romeo S.p.A. and its associated companies, while in 1993 it acquired the prestigious Maserati sports brand and completed the range of automobile brands that the Group still owns today. The number of international agreements for the manufacture of Fiat products under license continued to increase, as did interests held by Fiat in other companies. Particular focus was placed on acquiring stakes in telecommunications and components companies. In this area, a program of mergers and demergers culminated in a major reorganization that transformed Magneti Marelli into an industrial holding company, which in 1987 controlled more than 60 companies around the world. With the increasing use of electronics, components started to play a decisive role in the development of private transport vehicles. In 1989 the Fiat Tipo was elected Car of the Year, an award assigned by the international press for the innovative features of this model. Society was starting to change its attitude towards the automobile world: this mature industrial society began to recognize the importance of a cars environmental impact. Fiat addressed this issue by launching a project for the total recovery and recycling of end-of-life vehicles. In 1991 work began on two new plants at Pratola Serra and Melfi. These two plants, which became operational in 1994, represented a new revolutionary approach to industrial production. Fiat responded to the crisis of the yearly nineties by expanding its international presence. At the same time it undertook a major capital increase and continued to invest significant resources in innovation, while rigorously cutting costs and pursuing incisive restructuring programs. On February 28, 1996 Giovanni Agnelli became Honorary Chairman of the Fiat Group and Cesare Romiti took over as Chairman, a position he will hold until 1998, when Paolo Fresco replaced him. At the same time, Paolo Cantarella was appointed Chief Executive Officer.
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The Fiat Punto was the innovative car launched in those years. Designed to be a European car, in 1995 it was elected Car of the Year In 1998 the Panda celebrated its 18th birthday and became one of the cars that had been on the market for the longest time. Beginning in September 1997, the Parent Company left its offices in Corso Marconi to move to the Lingotto building, which is part of a complex that had in the meantime been turned into a fair and conference center. At the end of the nineties industrial competition became more aggressive in Western European markets. Fiat responded to the incursion of South East Asian products into the European market by returning to the Companys original strategy of focusing on emerging markets. The plants in Brazil and Argentina were expanded and Fiat launched the Palio, a world car designed to meet the needs of differing markets. Fiat soon became the biggest anufacturer in Brazil, Argentina, Poland and Turkey. In 1991, with the acquisition of the tractor and agricultural machinery operations of Ford Motor Co, Fiats construction machinery sector took on the New Holland brand and became international. In 1993 it signed an agreement with Hitachi Co Machinery Ltd and expanded existing joint ventures. It thus became one of the biggest manufacturers in the world, and accounted for approximately 20% of total global output. Iveco strengthened its leadership position in Europe, renewed its product range with the introduction of the EuroTech, EuroStar and EuroCargo new series and set up joint ventures and manufacturing operations in India and China for the production of the light vehicle Daily. In 2000, Fiat entered into an industrial alliance with General Motors, a giant of the automotive industry. Three years later, on January 24, 2003 Giovanni Agnelli passed away after forty years at the helm of the company. At the same time, in order to face the crisis that the Group was going through, Fiat redesigned the scope of its operations to focus on its automotive operations, thus selling certain non-strategic activities such as the Aviation and Insurance Sectors. On May 27, 2004 Umberto Agnelli, who had taken on the reins of the Group after his brothers death, passed away. The Groups top management now featured Luca Cordero di Montezemolo as Chairman, John Elkann as Vice Chairman and Sergio Marchionne as
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Chief Executive Officer. The new top management embarked on a profound restructuring plan. The Fiat Panda was elected Car of the Year and Ferrari won the sixth Constructors Championship and the fifth Drivers Championship in a row. Rigorous cost-containment measures and an incisive industrial relaunch enabled the Group to reach operating break even in 2004 and post an income in 2005. The termination of the Master Agreement with General Motors, which led to the unwinding of all joint ventures, is recent history. It was February 13, 2005 and Fiat Auto was once again a fully Italian company.
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